Sensex up 5,330 points since November lows. What should mutual fund investors do?

With the Sensex surging by 5,330 points from its November lows and reaching at the level of 82,133, the mutual fund expert believes that investors should adopt a diversified allocation strategy and should allocate 10% towards gold and 5-7% towards silver.

Experts suggest that after the above allocation, investors should allocate 20-30% in duration focused debt instruments and the remaining should be invested in equities through a staggered approach to mitigate risks associated with market volatility.

“Given the near-term weakness and macroeconomic moderation, investors should adopt a diversified allocation strategy. A prudent approach would be to allocate 10% towards gold as a hedge against inflation and market uncertainty, and 5-7% towards silver to diversify within commodities and benefit from industrial demand trends. Additionally, 20-30% should be allocated to duration-focused debt instruments, which can provide stability during volatility and benefit from potential future rate cuts. The remaining portion should be invested in equities through a staggered approach or systematic investment plans (SIPs) to mitigate risks associated with market volatility,” said Sagar Shinde, VP Research, Fisdom.

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“This allocation can be adjusted based on individual risk profiles, time horizons, and financial requirements. Investors with a lower risk tolerance may prefer higher debt and gold exposure, while those with a longer horizon can maintain a higher equity allocation. For investors who prefer a more simplified approach, investing in a multi-asset fund that offers exposure across gold, silver, debt, and equities can be a better choice for long-term wealth creation,” he added.

Sensex hit a low level of 76,802 on November 21 and then reached an all time high level of 82,133 on Friday. In the last nine months, BSE Sensex has gone up by around 10.91%. In the last one year, the index offered a return of around 16.58%. BSE Sensex has offered only 0.003% in the last three months.

With BSE Sensex reaching a new milestone, mutual fund investors are concerned about their investments. They are looking whether they should postpone their investments or continue investing.

The investor recommends that investors should not postpone their investments as delaying could mean missing out on potential growth opportunities. Continuing with SIPs or STPs can help take advantage of rupee cost averaging. The expert further recommends that investors who are looking to make lumpsum investments should deploy 50% immediately and rest gradually to balance risk and opportunity.

“Investors should not postpone their investments, as delaying could mean missing out on potential growth opportunities. Historical data shows that markets experience drawdowns every single year, yet they often deliver positive returns by the end of the year. Trying to time the market can result in missed gains during recovery periods,” recommends Shinde.

“Continuing with systematic investment plans (SIPs) or systematic transfer plans (STPs) helps take advantage of rupee cost averaging, smoothing out the impact of volatility. For lump-sum investments, consider deploying 50% immediately and the rest gradually to balance risk and opportunity. Staying invested ensures that you participate in market growth and benefit from long-term wealth creation, regardless of short-term fluctuations,” he further explains.

According to a monthly equity market insight by Mirae Asset Mutual Fund, the Nifty 50 Index's valuation at ~19.5x FY26 (E) (Estimated) and 17x FY27E P/E (price to earning) is reasonable given the consensus earnings growth of mid-teens CAGR (compound annual growth rate) over FY23-FY27. Earnings growth is broad-based, providing better certainty. Some sectors particularly amongst industrials trading at a premium. Mean reversion is expected in these richly valued sectors.

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With the current valuations, where should investors focus? Which mutual fund categories should investors choose for investment?

According to the expert, mutual fund investors should take conservative approach and avoid aggressive equity allocations, maintain diversified exposure, and continue investing through SIPs or STPs.

“Considering the current market scenario, investors should take a conservative approach. Diversified categories such as dynamic asset allocation funds, which can adjust equity and debt exposure based on market conditions, and multi-asset funds, which allocate across equities, debt, and commodities, are suitable options. For those looking to invest primarily in equities, flexi-cap funds are a good choice due to their flexibility to invest across large-, mid-, and small-cap stocks. Additionally, exposure to debt funds or gold can provide stability during periods of market volatility and elevated inflation, said Shinde.

“Investors are advised to avoid aggressive equity allocations, maintain diversified exposure, continue investing through SIPs or STPs, and focus on flexible, balanced, or multi-asset fund categories to manage near-term uncertainties. If investors are currently invested in equities and have a goal that is just one year away, it may be wise to exit and reallocate to safer debt instruments. This strategy helps safeguard capital and reduces the risk of market fluctuations, impacting returns as the goal period approaches,” he further recommended.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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